Trump just used Boeing's new global airliner to attack globalization

President Donald Trump at Boeing's North Charleston, South Carolina, plant. REUTERS/Kevin Lamarque

On Friday, President Donald Trump paid a visit to Boeing's factory in North Charleston, South Carolina, to help unveil the latest version of the company's 787 Dreamliner.

The new 787-10 — with capacity for as many as 330 passengers — is the largest version of the Dreamliner to date. The Dash 10 is capable of holding 14% more seats and can carry 15% more cargo than the current 787-9.

The 141-acre North Charleston facility is one of two assembly locations for Boeing's Dreamliner.

During his visit, Trump praised Boeing and its employees for the new jet and vowed to protect US manufacturing jobs.

"We want products made by our workers, in our factories, stamped with those four magnificent words: Made in the USA," Trump told Boeing workers and dignitaries in a speech.

However, while the plane is assembled in the US, the Dreamliner is actually a model of globalization, and Trump's policy proposals may threaten the way Boeing does business.

It's a flying symbol of an interconnected world economy — one with a network of global suppliers that would be hard to unravel with government policies, and a global group of customers waiting to buy the plans.

The Dreamliner is like the United Nations of planes:

Its wings and batteries come from Japan.

Its wing tips come from South Korea.

India is the source of its floor beams.

The front fuselage is made in the US and Japan.

The center fuselage and horizontal stabilizers are from Italy.

Landing gear and doors? France.

Cargo access doors are built in Sweden.

The wing/body fairings, which cover gaps on the body, are from Canada.

The movable trailing edge of the wings are from Canada, except when they're from the US or Australia.

Thrust reversers come from Mexico.

Its engines come from either General Electric in the US or Rolls-Royce in the UK.

What's made where. Skye Gould/BI Graphics

After all that, the components travel around the world before arriving at one of Boeing's factories in Washington or South Carolina, where they're assembled into finished planes. Then they're delivered to more than 60 airlines worldwide.

The Trump administration's foreign policy and stances on trade and defense could have significant effects on how multinational companies do business. While a company such as Boeing supports a massive manufacturing presence in the US, it has cultivated a broad network of international partners — accounting for 30% of the Dreamliner's suppliers — that have invested decades and billions of dollars into relationships with Boeing. These partners have deep ties to their local governments and business communities, but the new administration's hardline stance on globalization threatens those bonds. And for Boeing, it could give its main rival, Airbus, a serious leg up.

NAFTA and the war on trade

As the Trump White House dials up the tough talk on trade, there are few companies as potentially affected by policies and changes as Boeing. This is especially true for the nondefense half of its business, Boeing Commercial Airplanes, which makes the Dreamliner.

First, take the North American Free Trade Agreement, that pact between the US, Canada, and Mexico that for more than two decades has created a free market in the region. While NAFTA was controversial leading up to its inception, the furor over it has died down in recent years — until being reignited by Trump, who has vowed to renegotiate or even scrap the agreement.

A Boeing Dreamliner flies over Washington, DC. Boeing

Now, with NAFTA's future in doubt and Trump's plan to build a multibillion-dollar wall on the Mexican border — possibly paid for with a 20% tax on imports from Mexico — Boeing could suffer.

Those thrust reversers built in Mexico would instantly become a lot more expensive.

Customers are at stake, too. Mexico's flag carrier, Aeromexico, flies an all-Boeing fleet, while its two local rivals, Interjet and Volaris, are loyal customers of Airbus, the European giant. If Mexico were to retaliate against US tariffs by instituting its own border tax for goods coming into the country, Boeing planes could become a lot more expensive and lead Aeromexico to choose Airbus over Boeing.

"A 20% tax on the planes is huge and basically makes any Boeing product uneconomical for Mexican customers." Vinay Bhaskara, a senior business analyst at Airways, told Business Insider. "Boeing either becomes unprofitable in that market or they simply can't sell outside of the US."

For every Boeing plane, Airbus has an equivalent competitor. If you're thinking about buying a Boeing 737, you're also looking at the Airbus A320, for instance. They're generally priced similarly, too.

"China is easily the biggest area of concern for Boeing," Aboulafia said. "China is very big, and they account for 20% to 25% of Boeing's output right now."

Iran and Iraq are also planning to buy a lot of Boeing airplanes. The Iraqi government has 18 Boeing 737-800s on order as well as 10 787-8 Dreamliners. In total, it's worth about $3.7 billion.

The Boeing 787 production line in Washington state. Boeing

Boeing is also trying to complete a deal with Iranian leaders for an 80-plane order. That could be worth $16 billion, though likely less after negotiations.

But now Trump is president.

His executive order that temporarily barred people from seven majority-Muslim countries included Iran and Iraq, which responded with similar measures.

The Trump administration said it was putting Iran "on notice" after the country tested a ballistic missile, and relations between the nations — which are tenuous but seemed to have been improving since the nuclear deal — appear to now be worsening.

As with China, these deals are at risk if the Persian Gulf governments feel aggrieved by the new administration's policies.

Made in America

Trump rode into office on a populist platform, promising to reinvigorate American manufacturing. As a candidate and as president, he has used his own bully pulpit — and Twitter account — to shame companies like Carrier with plans to move jobs to other countries.

But for Boeing, with its international supply chain, switching many of its internationally sourced components for aircraft such as the 787 to a new US supplier is "basically impossible," said Aboulafia.

That's because, unlike traditional supplier networks, many of Boeing's suppliers are full partners that have invested their own money in the development of the 787's parts with the idea that they would make money off their investments throughout the life of the program.

I think he thinks this is kind of like importing cement for casinos, where you can just switch your source for the cement.

"I think he thinks this is kind of like importing cement for casinos, where you can just switch your source for the cement," Aboulafia said. "Trump may have the idea that they can shift sources, but the airplane industry doesn't work that way.

"Contracts tend to run the life of the program rather than 'We feel like buying from X one year and Y the next year,'" he added.

Take the Dreamliner's Japanese-built wings as an example.

If Boeing were willing and able to disentangle itself from that complex international-supplier relationship, Aboulafia said it would require reimbursing the Japanese and other companies that invested in the development and production of wings. Instead of being paid over the lifetime of the 787 program — about 30 years — Boeing would have to fully pay back the supplier to the tune of billions of dollars. Then Boeing would have to find an American company willing to invest in creating alternatives, as there are no US companies producing equivalent parts.

Tweet Force One

The current Boeing VC-25A that serves as Air Force One. AP

A few weeks after Election Day, Trump posted a tweet that had a single target: Boeing.

"Boeing is building a brand new 747 Air Force One for future presidents, but costs are out of control, more than $4 billion. Cancel order!" Trump wrote.

Boeing, blindsided by the tweet, was forced to quickly issue a statement that it's only "under contract" for $170 million to determine the capabilities of the new plane.

But the fact that companies can unexpectedly come into the president's crosshairs is the new reality for those doing business in the US.

And these tweets and statements can influence a company's perception among the public — and apply pressure to change how they run their businesses.

Thanks, Trump?

Trump in 1985 with an artist's concept of "Television City," a project that would have been built on the west side of Manhattan, New York. It never happened. Marty Lederhandler/AP

That's not to say that the new administration is all bad news for Boeing and other multinationals.

"Most of the good Trump can do for Boeing comes from what's generically good for corporate America," Bhaskara said.

The Trump administration plans to cut corporate tax rates, and there's talk of making it easier to repatriate the money that companies like Boeing earn abroad.

And the president could come to Boeing's aid in its battle with Airbus, which has long enjoyed subsidies from European governments. Boeing contends that's an unfair advantage, and the matter is being litigated at the World Trade Organization.

"If there are specific things Trump can achieve in terms of reducing European subsidies to Airbus, then I would think that helps Boeing compete a little bit," Simon Lester, a Cato Institute trade-policy analyst, told Business Insider.

It is customary for presidents to help push for sales of major US industrial products while on foreign visits. In fact, President Barack Obama once said that he deserved a gold watch from the company because he was constantly selling Boeing products. If he so chooses, Trump, the consummate salesman, could be Boeing's best marketing tool.